Q1 2025 Regal Rexnord Corp Earnings Call
Seijin: Good day and welcome to the Regal Rexnord first quarter earnings call.
All participants will be in listen-only mode.
Seijin: Should you need assistance, please signify conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad.
Speaker Change: To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Rob Barry, Vice President of Investor Relations. Please go ahead.
Rob Barry: Great, thank you operator, good morning and welcome to Regal Rexnord's first quarter, 2025 earnings conference call. Joining me today are Louis Pinkham, our Chief Executive Officer, and Rob Rehard, our Chief Financial Officer.
Rob Barry: which we've described in greater detail in today's press release and in our report filed with the SEC, which are available on theregalrexort.com website.
Rob Barry: Also, on this slide, we state that we are presenting certain non-GAF financial measures that we believe are useful to our investors. We have included recommendations between the non-GAF financial information and the GAF equivalent in the press release and in the presentation materials.
Rob Barry: Turning this light three, let me briefly review the agenda for today's call. Louis will lead off with his opening comment and overview of our first quarter of performance and a discussion of our business serving the humanoid market.
Speaker Change: Rob Rehard will then present our first quarter financial results in more detail, review our 2025 guidance, and provide an update on tariffs. We'll then move to Q&A, after which Louis will have some closing remarks. We with that, I'll turn the call over to Louis.
Louis Pinkham: Great, thanks Rob, and good morning everyone. Thanks for joining us to discuss our first quarter of results and to get an update on our business.
We appreciate your continued interest in Regal Rexnord.
Louis Pinkham: Before we dig into the material on this slide, let me share a few high-level thoughts on our first quarter performance in the current environment.
Louis Pinkham: We began 2025 feeling cautiously optimistic about our improving growth prospects. We had seen three-quarters of positive orders growth, and we believed.
Louis Pinkham: As we still do, that most of our end markets are at or near trough levels of demand and are starting to slowly rebound.
Louis Pinkham: This positive momentum continued in the first quarter. We saw further orders growth and all of our segments outperformed the targets we set last quarter.
Louis Pinkham: So a very strong start to the year, which we believe provides evidence of healthy underlying momentum in our business. This momentum contributed to our decision to reaffirm our earnings guidance for the year.
Louis Pinkham: Regarding tariffs, changes to U.S. trade policy have clearly raised uncertainty on several fronts, in particular regarding the macro outlook.
Louis Pinkham: And so during this period we have been staying close to our customers.
Louis Pinkham: and while they broadly acknowledge the heightened uncertainty that carous of cause.
Louis Pinkham: Today we have seen the little evidence of changes to plan spending
Louis Pinkham: Now, perhaps it is too early to see material changes, which is why we will be monitoring during man patterns closely and aim to share more on this front if in-win conditions materially change.
Louis Pinkham: For now, our teams are focused on executing our many growth synergy and cash flow acceleration plans. We are also hard at work implementing our robust mitigation plans with urgency.
Louis Pinkham: Rob will share more on this topic, but the punchline is that we expect our mitigation plans to fully neutralize current tariff impacts on our 2025 EBITDA and earnings, with a goal to be EBITDA margin neutral in the first half of 2026.
Louis Pinkham: So before continuing, I want to take a moment to thank our 30,000 Regal Rexnord associates for their hard work and disciplined, controllable execution.
Louis Pinkham: for delivering a really solid start to 2025 above our expectations.
Louis Pinkham: and for efforts underway to manage tariff impacts and pursue opportunities presented by the disruptions caused by tariffs that take share in the market.
Louis Pinkham: Now let me provide some specifics on our first quarter performance starting with sales. Our sales in the quarter were up 0.7% versus the prior year on an organic basis or 2.3% on a daily organic basis.
Louis Pinkham: Strength and Rezzi HVAC, aerospace and energy markets were key contributors, along with discrete automation which inflighted the growth after seven quarters of decline.
Louis Pinkham: Orders in the quarter on a daily basis and excluding currency impacts were up 3.3% and book to bill was 1.07.
Louis Pinkham: Notably, IPS orders were up nearly 9% with PES up just over 1%.
Louis Pinkham: AMC orders were down 3%, but up 2% excluding the data center business where from time to time we can experience order loneliness.
Louis Pinkham: On a 12-month rolling basis, AMC's orders are up nearly 7%.
Louis Pinkham: This marks our fourth quarter in a row of positive enterprise level orders for Regal.
Louis Pinkham: In April , daily organic orders were down 1.8% largely reflecting aerospace project timing in AMC, and anticipated Rezvi H. Beck order rebalancing in PES. While orders in IPS were up about 1%, after a 9% increase in Q1.
Rob will elaborate on the segment dynamics in his section.
Louis Pinkham: Turning to margins. In first quarter, our margins continue to expand. Our adjusted growth of margin was 37.9% of 50 basis points versus the prior year excluding industrial system.
Louis Pinkham: Our progress on gross margin was aided by achieving 18 million dollars of cost energies in the quarter.
Louis Pinkham: Adjusted EBITDA margin was 21.8% up 30 basis points versus the prior year excluding industrial systems aided primarily by its synergy benefits.
Louis Pinkham: Notably, all three segments exceeded their margin targets in the quarter, helped by stronger volumes and good cost management by our teams.
Louis Pinkham: Adjusted earnings per share in the quarter was $2.15, up 7.5% versus prior year, or up approximately 10% adjusted for the net impact of the industrial systems that bested her.
Louis Pinkham: Lastly, we generate in nearly $86 million a free cash flow in the quarter, up 32% versus prior year, which we consider strong performance in this seasonally weaker period.
Louis Pinkham: and contributed to Regal paying down $164 million of debt in the quarter.
Louis Pinkham: Cast generation debt pay down, remain an important part of our mid-term value creation story.
Louis Pinkham: In summary, a very strong start to the year that we believe supports the healthy underlying momentum in our business.
Louis Pinkham: Next, I'd like to shed some light on an exciting part of our portfolio that we have not spent a lot of time talking about in the past, our offering for the humanoid robot market.
Louis Pinkham: This market is still in the early stages of development, but is attracting substantial investments across a wide range of end market.
Louis Pinkham: It should not surprise you to learn that Regal Rexnord is very well positioned in this space with our automation portfolio and that we are gaining momentum here.
Louis Pinkham: So much so that our humanoid offering could start moving the needle on our enterprise sales growth rate over the next few years.
Louis Pinkham: I'm the left-hand side of this slide. We outline why we are strongly positioned in this space. It starts with our deep domain expertise, in particular in our discrete automation business and AMC, but also in parts of IPS.
Our Automation Teams
Louis Pinkham: have worked on humanoid projects for decades including on some milestones in the history of humanoid development such as creating rescue robots for the US Defense Department or the first humanoid robot art used in space by NASA.
Louis Pinkham: Our core expertise lies in product engineering, quality and reliability. We are a quality leader in precision motion control, providing a central product that ensures the coordinated movement of the robot's axes, such as arm and leg joints.
Louis Pinkham: Our engineers have a history of working very closely with our customers and in many cases to become an extension of an OEM's humanoid engineering team.
Louis Pinkham: While most of our work in this space has historically been on specific humanoid projects, we are starting to work with OEMs looking to produce units on a regular basis at scale, producing at scale is one of our core competencies which we can execute on a global basis.
Louis Pinkham: Finally, the scale and scope of our portfolio puts us in the unique position of being able to offer integrated solutions which is something our customers increasingly value and is very much aligned with Regal strategy.
Louis Pinkham: In fact, some of our significant recent wins in the humanoid space are solution sales.
Louis Pinkham: On the right side of the slide is our product offering
Louis Pinkham: It includes a range of highly engineered components, including frameless motors and miniature servo motors sold in our AMC segment, along with high precision bearings and brakes from our IPS segment.
Louis Pinkham: We are also selling integrated solutions comprised of these components, such as the actuator system pictured on the slide.
Louis Pinkham: In fact, Regal Rexnord was recently selected to provide an integrated solution critical for proper forming tasks with human-like dexterity.
Louis Pinkham: This solution includes motors, bearing, and actuators, all areas where Regal Rexnord has extensive expertise.
Louis Pinkham: Align in the lower left, market forecast for humanoid growth of wide-ranging, but they generally call for strong, double-digit cagars, nor the 50% for at least the next decade.
Louis Pinkham: A recent Morgan Stanley Industry report, for example, expects humanoid robot production and cowbacks to grow to an $80 billion market over the next 10 years from less than a billion dollars today.
Louis Pinkham: Restoring and manufacturing back to the United States should have a positive impact on this market and automation in general where we are well positioned.
Louis Pinkham: Based on our business analysis and ongoing discussions with leading customers in this field, we perceive mid-term opportunities to provide solutions for developing all the joints essential for a humanoid robots mobility.
Louis Pinkham: We have also secured several recent wins on this front with leading humanoid manufacturers worth over $20 million in sales annually, which are scheduled to ramp over the next 12-18 months.
Louis Pinkham: These wins cover between 30 and 50 axes of motion per robot and include both Regal Rexnord components and integrated solutions.
Louis Pinkham: In addition to these wins, our team has a funnel of opportunities worth approximately $100 million that we are actively working.
Louis Pinkham: I am extremely excited about our momentum in the space so you can expect to hear more from us as this rapidly growing market evolved.
Rob: and with that, I will turn the call over to Rob.
Rob: Thanks Lewis and good morning everyone. I'd also like to thank our global team for their hard work and discipline execution in the quarter. Now let's review our operating performance by segment.
Rob: Starting with automation and motion control, or AMC, net sales in the first quarter or up 40 basis points to the prior year period on an organic basis, and nicely above our expectations.
Rob: The performance primarily reflects strength in the aerospace and defense business and a return to growth in discrete automation, which was partially offset by weakness in general industrial and medical.
Rob: The inflection to sales growth in discrete automation, which was up 12% to the prior year period is a no-worthy positive after a sustained period of pressure in that end market.
Rob: We see growing positive momentum in this market based on our higher-shippable backlog in the second half of the year, and end to 2026, which is also expected to be mixed positive for the segment.
Rob: AMC's adjusted EBITDA margin in the quarter was 21.8%, which was almost two points above our expectations.
Rob: On stronger mix, aided by discrete automation and fleeting to growth, as well as benefits from higher volumes and good cost management by the team.
Rob: Orders in AMC in the first quarter were down 3% versus prior year on a daily basis and excluding FX impacts.
Rob: However, if we exclude data center where we are seeing some project lumpiness, orders for AMC were up 2% in the quarter.
Rob: Book to Bill in the first quarter for ANC was 1.02.
Rob: This project timing lumpiness is also reflected in April's order performance, when orders for AMC or down 6% on a daily basis do entirely to our arrow business.
Rob: This is not something we are concerned about because arrow orders have been strong for some time and we have a greater than 12-month backlog in this business.
Rob: Given the longer cycle and project-driven characteristics of our AMC business, we think it is also important to look at orders on a rolling basis
Rob: As Lewis mentioned, on a rolling 12-month average basis through first quarter, AMC's orders are up nearly 7%.
Rob: So, we continue to feel good about the Order Momentum in AMC where backlog has been building.
Rob: In particular, the segment's second half-shipable backlog is up low teens versus this point last year, which is a key driver of the stronger second half sales performance we expect in AMC this year.
Turning to industrial powertrain solutions or IPS
Rob: Net sales in the first quarter were down 3.4% versus the prior year period on an organic basis or down 1.9% on a daily organic basis, which was in line with our expectations.
Rob: The decline reflects significant, but expected weakness in the machinery of highway market, as well as project timing in metals and mining, partially offset by strain in energy markets.
Rob: By region, IPS sells in its core North America market or up low single digits in the quarter, which was more than offset by weakness in China, Europe and rest of the world.
Rob: Adjusted EBITDA margin for IPS in the quarter was 26.9%, about 90 basis points above our expectations.
Rob: The upside versus our guide was largely tied to stronger mix with the improvement versus prior year aided mainly by synergies
Rob: Borders and IPS on a daily basis and excluding effects impacts were up nearly 9% in the first quarter.
Rob: We believe this strong performance reflects further outgrowth, in particular wins on projects in the attractive metals and mining and marine markets.
Rob: It is helpful to recognize that order bookings in our IPS segment are increasingly weighted to longer cycle orders, especially with our strategic focus on selling industrial powertrain systems.
The business is split roughly 50-50 between OE and Aftermarket.
Rob: We would say the aftermarket business is predominantly short cycle and the OE business is split roughly evenly between short and longer cycle, implying that 25 to 30% of IPS overall is longer cycle.
Rob: As the longer cycle portion of IPS continues to grow, it should give us more visibility into our revenue performance and improve our ability to manage through market cycles.
Book to Bill in the first quarter for IPS was 1.13 3.
Rob: In April , orders on a daily organic basis were up 1%, which we find encouraging, given the strong, nearly 9% orders growth that IPS achieved in the first quarter.
Turning to Power Efficiency Solutions, or PES.
Rob: Net cells in the first quarter were up 8% versus the prior year on an organic basis, which was above our expectations.
Rob: The result largely reflects strong growth in residential HVAC, which was up nearly 30% in the
Rob: This is partially offset by modest declines in the general commercial market.
Rob: Versus our expectations, Rezi HVAC markets worth notably stronger. Overall, we were very pleased to see this segment return to growth and our cautiously optimistic this positive momentum can continue.
Rob: We would attribute the particular strength and ready HVAC to a few factors.
First, a strong furnace season
Rob: Second, destocking impacts after last year's pre-bi were smaller than anticipated but may still become more significant in the second quarter.
Rob: Finally, we likely saw them buying a head of terra-related price changes.
Rob: In short, there is a lot of noise currently in the Reggie HVAC data and channel, and so for now we are remaining measured in our approach to forecasting this business.
Rob: The adjusted even to margin for the quarter for PES was 14.2%, which was above our expectation aided by higher volumes, better mix, and strong cost management.
Rob: Orders in PES for the first quarter were up just over 1% on a daily basis and excluding
Rob: This result is above our expectations, given anticipated headwinds related to de-stocking and
Booked a bill in the quarter for PES was 1.02. .
Rob: Daily orders for PES in April were down almost 2%, which is consistent with our expectation that we would see some modest headwinds to orders related to Reggie HVAC destocking and weakness in the non-US commercial HVAC business.
Rob: On the following slide, we highlight some additional financial updates for your reference.
Rob: Notably, on the right side of this page, we ended the quarter with total debt of approximately $5.3 billion.
and NetDead now sits just below $5 billion.
Rob: We repaid approximately $164 million of gross debt in the quarter.
Rob: A further note, we ended the quarter with variable rate debt of roughly $290 million, representing just over 5% of our total debt outstanding, which we expect to have substantially repaid by the end of the third quarter.
Rob: Adjusted free cash flow in the quarter was $85.5 million, which was primarily deployed to debt reduction.
Rob: We plan to continue deploying the majority of our free cash flow to debt reduction in 2025.
Turning to the outlook.
Rob: Today, we are reaffirming our 2025 guidance, including sales, organic growth, adjusted EBITDA margin, adjusted earnings per share, and our prior adjusted EPS range of $9.60 to $10.40.
Rob: All our assumptions are outlined in the table on the right hand side of the slide.
Rob: While we are pleased with our performance in the first quarter.
Rob: Given we are only one quarter into the year, and considering the current macroeconomic uncertainty, we believe it is prudent to remain measured in our preach, in our approach to guidance.
Rob: As a result, we are not flowing the strong first quarter-out performance into our guidance.
Rob: Regarding tariffs, we expect our mitigation actions, which I will discuss in more detail in the next slide, will neutralize the impact of tariffs on our 2025 adjusted EBITDA and earnings per share.
Rob: I would note that to date, we have not seen clear signs of tear-related demand deterioration in our business.
Rob: Our teams have been close to our customers in recent months regarding this topic and while they are hearing broad basic knowledge of heightened uncertainty we have had little feedback regarding changes to planned spending. [inaudible]
Rob: Of course, tariff dynamics have been volatile, and playing out over a relatively short period of time, so it may simply be too early to be seen clear signs that spending will be impacted.
Rob: Regardless, this is something we are monitoring closely and intend to provide an update on the demand outlook if and when material new information becomes available.
Rob: Finally, before I leave this slide, I want to share a few thoughts on the various tariff-related cross-currents that could impact Regal Rexnord.
Dynamics that we have not factor into our guidance [inaudible]
Rob: On one hand, we see potential sales upside from tariff-related pricing, new share-gain opportunities and more favorable currency rates.
Rob: On the flip side, we can see weaker demand due to a softer macro environment and or elasticity in response to our higher prices.
Rob: We believe it is premature to say with any precision how these dynamics may play out, but at this time we believe the positives, like the outweigh the negatives.
on this slide.
Rob: We are updating our expectations regarding tariff impacts and how we are responding.
Rob: In the first column on the left, we lay out the annual, unmitigated cost impact from Terrace in place at the time of our March 19th Terrace update.
Rob: The estimated gross annual impact at that time totaled approximately $60 million, broken down between
Mexico, Canada, and China, at Detailed on the slide.
Rob: There was no rest of world impact at that time. At March 19th, our mitigation actions were expected to neutralize tariff impacts on our adjusted earnings per share within the year, and to result in a neutral impact to even the margins, but the end of this year.
Rob: In the next column, we are updating these estimates based on Terrace in place as of yesterday May 5th when we release our earnings.
Rob: The gross, annualized, unmitigated impact is now $130 million. Again, broken down on the slide by category and region.
Rob: The main changes in our prior update are a larger impact from China and adding impacts from rest of the world.
Rob: You can see further down, that column, that we still expect our mitigation actions to result in tariffs having a neutral P&O impact within this year and a neutral EBITDA margin impact by mid-20026 and a neutral EBITDA margin impact by mid-20026
Rob: Notably, the majority of today's update relates to higher China impacts given we have limited exposure on rest of the world.
Rob: On the right-hand side of the slide, we lay out our principal mitigation actions, which we started to implement during the first quarter.
Rob: These include supply chain realignments, production relocations, productivity measures, and pricing actions.
Rob: We have early positive momentum behind these actions, which bolsters our confidence we can fully mitigate a pair of impacts on our PLNL.
Rob: We are prioritizing actions other than price in order to minimize tariff cost impacts for our customers.
and given the flexibility of our Global Manufacturing footprint.
Rob: and our in-region for-region manufacturing strategy. We believe these can have a meaningful impact. That said, we still expect that pricing will be an important contributor to our mitigation efforts, and we started to take tariff-related pricing actions in the first quarter.
We also share a few other chair-related considerations.
Rob: 1. Approximately 95% of our imports to the U.S. from Mexico and Canada are USMCA compliant.
Rob: 2. We are dual-country source on a majority of our imports to the US from China.
Rob: 3. Our flexible, global manufacturing footprint is enabling production moves outside of China, many of which are currently underway.
Rob: And finally, the rest of world impact on regal is relatively small, reinforcing our in-region for reach of strategy.
Rob: The bottom line is that we are confident under tariffs currently in place, our mitigation actions should neutralize tariff impacts on our adjusted EBITDA and earnings per share in 2025, with margin neutrality occurring mid-20026 [inaudible]
Rob: On this slide, we provide more specific expectations for our performance by segment, on revenue and adjusted EBITDA margin for second quarter and for the full year.
Rob: While our full-year assumptions are largely unchanged, I will flag one update.
Rob: We move the PSL's guide from down low single digits to approximately flat, considering that segment's strong start to the year, plus our view that some of that positive momentum will carry into the second quarter.
Rob: We now expect all of our segments to see roughly flat sales in 2025 versus the prior year which is consistent with our enterprise level expectation for flat organic growth.
Rob: As I wrap up my prepared comments, I like to emphasize three points.
One
Rob: While recent trade policy turmoil is creating some uncertainty, we feel very good about our ability to achieve tear-related cost and margin neutrality.
Rob: 2. We believe the underlying momentum in our business is positive
Rob: We have now had four quarters in a row of positive orders and compared to the same time last year our backlog scheduled to shift in the second half of this year is up low double digits in AMC and up high single digits in IPS which gives us confidence in our full year guide.
Rob: And three, even if we do encounter some macro frictions ahead, we still have many levers to pull to create shareholder value, which include 90 million of remaining cost synergies.
Rob: Ample Sales Synergies, Opportunities to materially shift our capital structure to equity as we generate cash and pay down our debt, a range of outgrowth initiatives and expected share wins due to tariff uncertainty.
Rob: In summary, we are confident we will create value for our shareholders in 2025 and beyond and with that operator we are now ready to take questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star with an 100 telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star with two. At this time, we'll pause momentarily to assemble our roster.
Speaker Change: In the first question comes from Mike Halloran with Beard. Please go ahead.
Good morning, guys. Good morning, Mike.
Mike Halloran: Okay, so let's start on the long cycle or short cycle side of things. Can you just talk through the dynamics you're seeing on that side?
Speaker Change: I know you touched on it briefly by segments earlier, but...
Speaker Change: maybe holistically how you're seeing the long cycle orders, how the shorter cycle business is tracking as we move through here, any changes?
Speaker Change: And then secondarily, is there any change to the expectations on how the second half long cycle projects that you talked about last quarter, how those rolled through in the second half of this place?
Speaker Change: Yeah, Mike, appreciate the question. You know, we've seen some good momentum on winning longer cycle larger projects, especially in our IPS segment. And this really aligns directly with our strategy there of leveraging the capabilities across the industrial powertrain.
Speaker Change: to win more. So we feel really good about sales, excusing orders in the quarter, being up roughly 9% and then even coming off of that, orders being fairly strong in April .
Speaker Change: From a short cycle perspective, you know, we're really not seeing any significant changes. They're fairly stable. If you look just specifically to IPS, short cycle orders, we're up roughly 2%.
in Q1, and so feel fairly good.
Speaker Change: From a second half perspective, we certainly with the strength of the performance in the first quarter, we were able to balance a little bit more of the growth expectations of the second half.
Speaker Change: At this point, we're on, we're expecting the second half to be up, only about 1%.
Speaker Change: As Rob said in his preparing remarks, we actually have backlog for the second half for IPSX.
Up, roughly high single digits, and for AMC that's up.
Speaker Change: Low Double Digits, which gives us really pretty solid confidence in our forecast for the second half.
Speaker Change: And so, at this point, we're not changing anything with our expectations of long cycle shipping in the second half and to a pretty good about the, to a really good about the guide at this point.
Speaker Change: Thanks for that. And then follow a question. Maybe just talk about the competitive position here. I don't lose you alluded to it in your remarks and we're obviously more explicit but maybe some thoughts about the competitive position with your footprint and how you source.
and where the opportunity set for some share games. [inaudible]
Resides within the portfolio.
Speaker Change: Yeah, thanks for the question, Mike. You know, we won't speak Pacific to a competitor, but overall, on the whole, we believe we're in a net advantage.
position, given our global manufacturing footprint. [inaudible]
and a lot of our dual-tentry sources. Thank you.
Speaker Change: I mean, if you think about the, from the first set of tariffs to the second set of tariffs that we slowed, showed on the slides
Speaker Change: We're actually only seeing about a 70 million uplift, a festive world that has a fairly small impact on us and that just shows you that we've been working on an in-region for-region sourcing strategy for quite some time.
Speaker Change: in particular for our PES and IPS businesses, but we're absolutely seeing sure opportunity because of the footprint in AMC as well. So we think this is a net positive for Regal and expect to see some...
benefits over the next few quarters.
Thanks for this, appreciate it. Yeah, thanks Mike.
Julian Mitchell: Andrew next question comes from Julian Mitchell with Barclays. Please go ahead.
Julian Mitchell: Yes, hi, good morning. Maybe just my first question was just around the EBITDA margin outlook. So I think you've built sort of 22% building for the first half, 24% the second half. Maybe just talk through some of the drivers of that step up. And how do you see tariffs?
Julian Mitchell: affecting the margin progression of Regal through the bottoms of this year.
Julian Mitchell: Yeah, so, first of all, for perspective, you know, our guidance implies about 1% growth of your year in the second half, slightly weightage up over quarter versus third quarter. From a margin standpoint, we do expect to step up in the back half from a margin perspective, primarily in A and C. And the drivers there are around mix, in volume, along with some price, synergies, [inaudible]
Julian Mitchell: and restructuring. So, MIX is the primary driver given the recovery of discrete automation, where margins are roughly 500 basis points.
Julian Mitchell: above our fleet average, from a progression in the way that tariffs should roll through in the year.
Julian Mitchell: You know, we, we will capitalize the cost of the terrorists which will then hit the PNL as our inventory turns and so, you know, there is going to be a lag there and it's a hard, it's hard to calibrate precisely. There could be some small timing impact from quarter to quarter, but again, we feel very confident in our ability to, to be even neutral by the end of the year. [inaudible]
Speaker Change: Great, thanks. And my second question just on the PES, Revenue Outlook is that's the one segment where the guide changed this morning.
Speaker Change: May be done a little bit deeper into the second half of some functions on top line, so I guess you're saying first half is up, mid-single digits, here on here in Australia, I think it's a P.E.S.
Speaker Change: earlier as perhaps, it realised there's a tough account in the fourth quarter and so on, that maybe just sort of help us understand, you know, the degree of concern which is otherwise in that second half P.E.S.
Julian Mitchell: Yeah, thanks to the question, Julian. You know, we think it's two, we're very pleased with the performance of the first quarter and the strength of the first quarter. However, we think it's a bit too early to assume that strength will pass through the year, especially given...
Julian Mitchell: what we're seeing from party results, consumer confidence and housing weakness. And although we have freed...
Julian Mitchell: Good line of sight to Q2. We are expecting the second half to be slightly down, and really what's weighing on us is the macro, and so that's how we pull together this forecast for PS.
Great. Thank you.
Thank you, thanks Glynn [inaudible]
Speaker Change: Andrew next question comes from Jeff Hammond with Keybank Capital Markets. Please go ahead.
Jeff Hammond: Hey, good morning guys. Good morning. I'm just a hit. I'm at the 130 million of tariffs. Is there a way to break down how you think about, you know, mitigating that? How much is price? You know, maybe how to rank order some of these other mitigation initiatives?
Jeff Hammond: Yeah, so, you know, we put it in order of what we think is going to be in the major drivers, so we haven't tried to break it down more specifically Jeff to percentages, but we do see...
Jeff Hammond: Supply based realignments as being the driver, then second to that production relocations and productivity actions, and then for sure we'll have to leverage price and surcharges to be able to offset.
Jeff Hammond: But in the end, we feel very confident about our EBITDA neutral by the end of this year and margin neutrality by the middle of next year.
Speaker Change: Okay, then two margin questions. I guess one, what's the step down in an IPS-1Q to 2Q, is that just mix or is that a tariff timing issue then?
Speaker Change: You lifted the margins on PS, and I'm just wondering if that's just the strong 1Q or if there's something else going on to drive that as well.
Speaker Change: Yeah, so the, first of all, your first question on IPS, you know, they're largely the first quarter to the second quarter is going to be around mix.
Speaker Change: more than anything else. It will be a mix of business with N.I.P.S. and how we see that that translating. Your second question related to...
Speaker Change: The DES, and it's really just to flow through the Q1 performance for the year.
Speaker Change: That's improving the margins as we move through the year there, so that's also contributing to the margin improvement as we move through for PES.
Speaker Change: And it's basically you know the same pattern that we saw last year, Joe.
Okay, great, thanks [inaudible]
in P.S.
Speaker Change: Andrew, next question, comes from Kyle Menges with City Group. Please go ahead.
Kyle Menges: Thank you. I think you had said you'd seen some free buy at least in PES ahead of tariffs in the quarter. Do you get the sense that there was any other maybe free buying in the first quarter ahead of tariffs?
Kyle Menges: I think IPS orders up 9% was particularly strong in the quarter, so some of that pre-by would just be helpful to hear your sense of that in the quarter for the seconds.
Kyle Menges: Yeah, good morning, Kyle. And we were trying to stay very close to our customers to understand this. When you look at the profile of the orders in ITS, they were mostly longer cycle, larger orders.
And so, not really, not at all, pre-by, driven [inaudible]
Kyle Menges: and we saw, you know, low single digit growth in orders in the short cycle and I guess, so we didn't feel...
Kyle Menges: You know, maybe there's a scattering here and there, but nothing that we would call out material other than we do think perhaps some of the Rezzi HVAC was a bit of a pre-bion we heard that from some customers.
Speaker Change: Got it, that's helpful. And then I thought synergies in the quarter of 18 million was pretty good. I mean that's one third of plant synergies realized in the first quarter, at least for the year. So I guess was that fairly in line or perhaps a little bit above what you had anticipated and then could you just talk to your confidence and still hitting that for your synergy target of 54 million despite some of the tariff headwinds. [inaudible]
Speaker Change: Yeah, I'd say that the 18 million that we had is very much in line with our expectations. We're still right on track for 54 million.
Speaker Change: You know, we've got, in the year, which means we've got about 90 million left and synergies coming at us, so we feel very good about it. So, cadence of this year, right on track, and expectations going into next year also feel really good about that based on the project activity that we've got going on.
Speaker Change: And you know, Kyle, we would not see any impact because of terrorists and it really goes back to our strategy of in-region or region.
So we're looking at in-region for any of our synergies
Got it. Thanks, guys.
Speaker Change: Andrew next question comes from Nigel Coe with Wolf Research. Please go ahead.
Nigel Coe: Thanks, good morning. I want to go back to Jeff's question on the 2Q margins in IPS and AMC.
Nigel Coe: Probably mixed, but I'm wondering if there's a little bit of sort of tariff pressure ahead in there, or is the FIFO pushing the inflation beyond Tuku? Just curious if there's anything impingent on those margins.
Nigel Coe: Really not. I mean, if you look at the guide that we've put out, first quarter, second quarter, for AMC, your time margins are relatively...
Nigel Coe: Flack from 1st to 2nd quarter, nothing really going on there, and IPS is really more of a mix.
Nigel Coe: Discussion than anything. There are certainly tariffs that will be capitalized, but we've already started that process. Will there be some slight impact there? Yes, but if anything, it would likely wait for our benefit.
Nigel Coe: because the pricing is already as embedded and the tariff is being capitalized in in that business.
Nigel Coe: going to be three to four months. So you're going to get a benefit of anything from the tariffs in the second quarter.
Yeah.
Speaker Change: By the way, congratulations on moving away from life of counting.
Speaker Change: a couple years ago. And then, going back to this idea of kind of competitive advantage from the Tabst County in place, we know you've got a pretty sizable Chinese competitor in HVAC Motors.
Speaker Change: But are there any other pockets of, you know, in any businesses where you do face, you know, Chinese or Asian competitors, particularly ones exporting still from regions?
Speaker Change: You know, really less so of Chinese competitors, but we absolutely do see some Asian competitors especially in AMC where we've already started seeing a benefit.
Speaker Change: And so, you know, this again, though, was why we'd moved [inaudible]
Speaker Change: More and more to technology-based products and away from commoditized products. And so from our perspective there's going to be some opportunity there that we'll be able to leverage.
Okay, I'll be back there. Thanks. Thanks
Speaker Change: Andrew, next question, comes from Tim Thein with Raymond James. Please go ahead.
Tim Thieme: Thank you for the morning. Maybe just first, I'd likely missed it, but Rob, a question as you went through and talking about the, everything, the guidance that was reiterated, I may have missed it, but was the free cash flow target? Is that?
Speaker Change: Still on track for the roughly 700 million, I didn't know if I saw that [inaudible]
Speaker Change: It is still on track for 700 million in the year or an exit rate of 900 million, so all still on track.
Speaker Change: Got it. Okay, good. And then just a question on IPS, obviously not the biggest part of the business, but...
What are you going through the comments from a regional performance?
It stood out in terms of the...
Speaker Change: Maybe Louis, again, not something that's going to get a ton of airplay, but I think it would imply down like 20%, assuming I heard you correct in terms of the North America, can you just maybe spend a minute on that in terms of...
Speaker Change: That may be, you know, going forward your expectations for that non-US part of IPS.
Speaker Change: Yeah, you're right, it's actually probably loaded mid-teens when you do the math out. Europe is certainly the industrial economy in Europe has been weak and so have been in China. I would comment, though, that 2024 we saw this.
Speaker Change: The flip, actually, North America was down-losing all digits, but rest of the world was up.
Speaker Change: which allowed us to have roughly flat tails. Right now we are and feel good about outgrowth in the US and that's going to help us through this year and we're still expecting rest of world to be slightly down.
Speaker Change: That's an archive to be flat for ITS for the year.
Speaker Change: Okay, all right, understood. And then on AMC, just thinking as we look into the back half of the year, I think you'll...
Speaker Change: I'm assuming I did the math correctly. You should be exiting the year from an EBITDA margin perspective, you know, add or kind of near the midpoint of that, the target you outlined for 27.
Speaker Change: 2027 of, you know, call it mid- mid-20%-ish. Is that, as you think about the projected mix of the revenues, obviously a little heavier?
Speaker Change: Where are you today in automation? Is that kind of a reasonable…
Speaker Change: You know, run rate from a product mixed standpointers or something that you would you would kind of caution against reading too much into that because it's the simple question is you know that that implies your exiting your [inaudible]
Speaker Change: You know, near that, that the target that you outlined, so I just wanted to kind of gauge your, your comfort level about on that. Thank you.
Speaker Change: You know, I know it's been two years now, but the compelling strategy of acquiring ultra was to get the automation business. And that automation business we believe will grow and grow at an accelerated pace.
Speaker Change: and it does have margins that are roughly 500 basis points above our fleet.
Speaker Change: And so for that perspective, we would expect our EBITDA margins to continue to take up just because of mix over time.
Speaker Change: So, we do think that 24-7 does start to become a very good number going forward.
Got it. All right. Thank you, Lewis.
Speaker Change: And your next question is a follow-up from Nigel Coe with Wolf Research. Please go ahead.
Nigel Coe: Oh, thanks. Thanks for the second bite of the show here.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE & SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com. All information on this website is purely information and should not be used as the sole basis for making financial decisions. The opinions rendered herein are those of the guests, and not necessarily those of Douglas Goldstein, Profile Investment Services, Ltd., or Israel National News.
Speaker Change: I'm just wondering, you know, the opportunity funnel of $100 million, is this sort of, you know, what are you sort of bidding on today in terms of, you know, what's out there? And is this a supply chain that's largely in China or is it, because obviously that's where we hear most of the...
Speaker Change: Activity From, but is this more global than that? So is there mainly just Chinese business?
Nigel Coe: Yeah, Nigel, I appreciate the question. It's not mostly China business actually, but the 20 million dollars of annualized business that we won in the last quarter is not Chinese based and would not be supplied from China either.
So, with that 100 million though funnel...
Nigel Coe: Nigel, I'd say it's global, but I do not have a further breakdown of what that means, but I can tell you again the wins were not Chinese-based wins.
Speaker Change: as a majority. There's a little bit in there, but mostly North American centriarchs.
Okay, great. I'll leave it there. Thanks. Yeah, thanks.
Speaker Change: Again, if you have a question, please press star then one. Your next question comes from Christopher Glynn with Oppenheimer, please go ahead.
Christopher Glynn: Thank you. Good morning. You've just thrown back to the IPS Margin Guide once wanted to dive into the mix effect. Are you seeing, you know, distribution kind of static and OEM picking up because I'm not aware of other mixed variations you've talked about in the past that IPS.
Christopher Glynn: Yeah, the answer, short answer is yes, that is what we're saying. More OEM versus distribution which is aligned with our strategy that we've been discussing.
on the first from the first bit strategy.
Speaker Change: Okay, and you know, it sounds like on the share opportunity related to tariffs and your advantage footprint, you know, you're talking about some some real time things will will be seeing this year. So are you seeing, you know, you're actually negotiating with customers right now and
Is that continuing to pick up momentum? [inaudible]
Yeah, Chris, absolutely. Each one of our businesses have...
Speaker Change: and different profiles. Right now, we're not saying that it could be significantly material to the year, but feel good about the way we're positioned. And again, I draw you back to the tariff slide where...
Speaker Change: We have been working for quite a while to be in Region 4 Region, and so a step-up of...
Thank you.
Speaker Change: I don't like using the word only when I talk about a $20 million cost in that, but for rest of the world being a $20 million step up, and then China being 60, it tells you that we supply in Region 4 Region, which puts us in a preferred position in the number of our businesses.
Speaker Change: Okay, great. And anything you win that would tend to be sticky, I guess, right? It would hang around on a repeat basis.
Speaker Change: Well, especially, you know, as we've been working hard for this, I'm moving to more technology-based.
Speaker Change: Businesses, once you get in and you can serve well, you stay. And we feel really good about being able to do that. But getting in the front door is sometimes more difficult. So, if this opens that door for us, awesome.
Thank you.
Speaker Change: Sounds good. Last one for me is on AMC's medical business. Is that a market you see taking a pause or just a little lumpy short-term?
Speaker Change: A little lovely short-term, not because of the demand in the end market, more around our customers and their inventory management of the channel. So, we think...
Speaker Change: And you're really good about this being a continued market for growth for us and we and that we're investing in the market with new product and technology.
Speaker Change: Okay, so you think that should back to growth within the year? Yeah, but we're pulsing by the end of the year that we'll return into growth.
Speaker Change: So we're in the 20 seconds. Yeah, appreciate you, Chris. Yeah, thanks Chris.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Louis Pinkham for any closing remarks.
Louis Pinkham: Thank you all, Brother, and thanks to our investors and analysts for joining us today.
Louis Pinkham: Q1 was a strong start for Regal, which is allowing us to hold our guidance while also taking an incrementally more measured approach to our rest of your assumptions.
Louis Pinkham: As we look ahead to the remainder of 2025, we will continue to manage what is under our control and in this regard we see many opportunities to create value for our shareholders.
Louis Pinkham: We still have $90 million of cost synergies to deliver, ample sale synergies, a host of organic growth acceleration projects, and sizable upside from augmenting our free cash flow and paying down our debt.
Louis Pinkham: We believe the strengths of our orders and backlog and in markets they're just starting to rebound.
Also create a highly favorable risk-reward profile for investors.
Louis Pinkham: We acknowledge their related uncertainties, but are confident in our ability to manage through them with potential macro risk to the top line, but also likely upside from higher price and strategic share gain opportunities.
Louis Pinkham: In short, high confidence that Regal Rexnord presents a compelling value creation opportunity for our customers, our associates, and our shareholders.
Louis Pinkham: Thank you again for joining us today, and thank you for your interest in Regal Rexnord.
Thank you. Thank you.
Thank you. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.